Pandora Stock Goes Quiet in the Face of iTunes Radio Success

During the past year, Pandora (P[1]) stock has racked up gains of 150%, blasting the broader market by more than 100 percentage points. In 2014 alone, P stock has already gained 30%.

But things could quickly get tougher for Pandora stock investors.

The main reason: Apple (AAPL[2]). The company’s iTunes Radio streaming service, which was launched just six months ago, now has about 8% of the U.S. market[3]. That means the service has already gained the No. 3 spot, behind Pandora and iHeart Radio.

This looks like Apple making another case for the huge advantages of controlling a platform. Platform control is often what makes winners and losers in the tech world. Just take a look back at the 1980s and 1990s when Microsoft (MSFT[4]) built its empire on its DOS/Windows platform. When an application became a hit, the company could easily build its own version — like the Office Suite — and get tremendous distribution.

In other words, Apple is now in an ideal position to do the same with its iOS platform.

Now it’s true that Pandora still has a big lead, with the U.S. market share at 31%. Besides, Apple’s iTunes Radio is only available on Apple devices, which necessarily limits its growth potential.

But with the momentum of iTunes radio, there is likely to be some erosion of Pandora’s market share. If Apple can knock off even a few percentage points, this could slow the growth ramp for Pandora stock. And there may be signs of that happening already.

In February, Pandora saw only a 9% increase in listening hours (on a year-over-year basis). Keep in mind that, in 2013, the growth rates were in excess of 40%. The listening-hour metric is critical since much of Pandora’s revenues come from advertising.

And Apple’s impact on Pandora stock may get even worse. It looks like that the company will launch a separate app for iTunes Radio for iOS 8[5]. With that kind of visibility, the app could get even more traction.

That gives Pandora stock owners enough to worry about, but the troubles don’t end there. Pandora stock may also feel some pressure because Google (GOOG[6]) is also making big platform moves with Android. Perhaps the most notable move is allowing music streaming on YouTube. Yes, a video/music combo could be a killer feature — and something Pandora would have a difficult time replicating.

Despite all these obstacles, Pandora stock is trading at a nose-bleed 11 times sales. But if the growth decelerates — which seems like a reasonable possibility — it could be tough to sustain the current market cap.

In other words, this may be a good time for investors to take profits on Pandora stock.

Tom Taulli runs the InvestorPlace blog IPO Playbook[7]. He is also the author of High-Profit IPO Strategies[8], All About Commodities[9] and All About Short Selling[10]. Follow him on Twitter at @ttaulli[11]. As of this writing, he did not hold a position in any of the aforementioned securities.